BTEC HND Business Strategy: Spotify External Analysis Report

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Added on 2021/03/22

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This report, prepared for Deloitte LLP, provides an external analysis of Spotify Technology S.A. The report begins with an introduction to the company and the structure of the analysis, followed by an examination of Spotify's strategic context, mission, and vision. The core of the report involves a detailed PESTEL analysis of the US market, considering political, economic, social, technological, legal, and environmental factors. The analysis explores the impact of the COVID-19 pandemic on the music streaming industry, including changes in consumer behavior and economic effects. Furthermore, the report delves into the industry/sector audit using Porter's Five Forces, stakeholder analysis and identifies opportunities and threats facing Spotify. The report concludes with strategic recommendations based on the external analysis.

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ASSIGNMENT 1 FRONT SHEET
Qualification BTEC Level 4 HND Diploma in Business
Unit number and title Unit 32: Business Strategy (574)
Submission date 26/1/2021 Date received (1st submission) 26/1/2021
Re-submission date Date received (2nd submission)
Student name Cao Phuong Linh Student ID GBH190801
Class GBH0809 Assessor name Nguyen Thuy Linh
Student declaration
I certify that the assignment submission is entirely my own work and I fully understand the consequences of plagiarism. I
understand that making a false declaration is a form of malpractice.
Student’s signature:
linh
Grading grid
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Internal Verifier’s Comments:
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Table of Contents
INTRODUCTION .............................................................................................................................. 4
1. About the main purpose and structure of the report ........................................................ 4
2. About Spotify Technology S.A. ........................................................................................... 4
PART 1: EXTERNAL ANALYSIS ......................................................................................................... 5
I. STRATEGIC CONTEXT OF SPOTIFY TECHNOLOGY S.A ......................................................... 5
II. MACRO ENVIRONMENTAL AUDIT IN SPOTIFY TECHNOLOGY S.A ..................................... 7
III. INDUSTRY/SECTOR AUDIT IN SPOTIFY TECHNOLOGY S.A ........................................... 11
IV. SPECIFIC STAKEHOLDER ANALYSIS ................................................................................ 14
1. About Spotify Technology S.A ....................................................................................... 14
2. Stakeholder mapping .................................................................................................... 14
V. OPPORTUNITIES AND THREAT IN SPOTIFY TECHNOLOGY S.A......................................... 15
CONCLUSION ................................................................................................................................ 17
REFERENCE.................................................................................................................................... 17

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INTRODUCTION
I am a business adviser at Deloitte LLP and my company provides a range of advisory services
from internal and external analyzes to strategic planning, project evaluation and implementation
in many fields. My organization currently has an order from Spotify Technology S.A. operating in
the leisure industry.
1. About the main purpose and structure of the report
The CEOs in Spotify Technology S.A desire my company to assist in undertaking a thorough
organisational audit including an internal and external assessment of the environment. They also
would like to provide suggestions about what approach they can adopt in future, based on these
analyzes.
In this first report, I am responsible for searching, processing and submitting strategic
observations and recommendations as an official strategy report about the external analysis of
the Spotify company from credible sources. Two key tasks underlie to build the structure of this
report. One is to examine the macroenvironmental impacts and effects on the company and its
business strategy. Another is to analyze and apply the findings of a study for a certain market
region using Porter's Five Forces models.
2. About Spotify Technology S.A.
Figure 1: Logo in Spotify Technology S.A.(Spotify Technology S.A, 2020)

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Spotify Technology S.A offers music streaming services that allow music fans to have immediate
access to music. The company provides its subscribers commercial or free music and ad-
supported services.
The company, which is headquartered in Luxembourg, was founded in April 2006 by Daniel Ek
and Martin Lorentzon. Spotify is currently the world's most popular streaming service with 320m
users in 92 countries, including 144m subscribers. (Spotify Technology S.A, 2020)
PART 1: EXTERNAL ANALYSIS
I. STRATEGIC CONTEXT OF SPOTIFY TECHNOLOGY S.A
Spotify's corporate mission is "to broaden human creative potential by providing a million
creative artists with the opportunity to enjoy their art and billions of fans". Besides that, the
Spotify mission statement defines the purpose of the company, emphasizing its services and
products. Furthermore, this mission statement also describes the organizational priorities for
Spotify of the organization, the procedures used by the company, the target customer segments
and the area in which the company works. (Spotify Technology S.A, 2020)
The corporate vision of Spotify is to be "an cultural platform where professionals can break free
from the constraints of their medium and where everyone can enjoy the immersive experience of
art that empathizes and feels part of a larger whole" (Garcia, 2019). Spotify's vision statement is
its corporate future plan: it determines what Spotify company will be and where it aims to be in
future. The Spotify vision statement is a document which outlines Spotify's objectives in order to
facilitate its strategic, governance and general decision-making processes.
As the covid pandemic continues to strike, the company said it is expected to meet its full-year
financial targets, alleviating investor concerns that a reduction in the number of people working
during the pandemic could affect enjoy streaming services. The company expects total premium
subscribers to reach 140-144 million in the first quarter of 2021, well above expectations of 141.4
million, according to IBES data from Refinitiv. (CNBC News, 2020)

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The truth is that business strategy plays a key role in proposing sustainable commitments to a
company's prosperity. Company strategy is the combination of all elements of vision, values and
mission that drive innovation and transform the company's business.
The following example is the success of the IKEA company. Furniture industry IKEA is one of the
companies that represent the success of a clear direction in proposing a company strategy based
on two clear foundations of vision and mission.
In the period 2012 to 2020, the company came up with a community-driven strategy, detailing
the company proposed a Positive Sustainability Strategy for People and the Planet, which outlines
an approach to achieving have positive impacts on society and the environment. Leontyne Green
Sykes, former marketing manager at Ikea US, said: “Helping us to live up to our commitment to
making the everyday lives of many people better,” said Leontyne Green Sykes, former marketing
director at Ikea USA, said. (Yohn, 2015)
This strategy has attracted a lot of people of all walks of life, from large to small to owning IKEA
furniture. IKEA Group is still on the rise, affirming the position and brand value of billions of euros
not only of the company but also of the furniture industry. Evidence, revenue at IKEA has grown
year by year, even when changing new strategies. According to the report, 2019 revenue was
the highest in the 2012-2020 period, reaching 41.3 billion euros (5 billion euros higher than
expected), 1.5 times more than 2012. In 2020, revenue net of 39.6 billion euros as a result of the
covid-19 pandemic, but still nearly 1 billion euros higher than in 2018. (Statista, 2020)

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Figure 2: Annual revenue of the IKEA Group worldwide from 2001 to 2020 (Statista, 2020)
In short, a strategy is a strategy that transforms a company's vision and purpose, based on its
principles, into a series of steps that gives the company a competitive edge in the marketplace.
Strategy always goes hand in hand with a vision and a mission towards the goal. business in the
future. Thereby, we also see the importance of the company's vision and mission when it comes
to brand equity.
II. MACRO ENVIRONMENTAL AUDIT IN SPOTIFY TECHNOLOGY S.A
When analyzing to the macro environment, also known as the "PESTEL model", this model is
used in business planning and marketing. It summarizes how broader forces are, and can shape
a business. PESTEL factors include politics, economy, society, technology, law, and environment.
In this report, the six elements of PESTEL will be analyzed in detail in the US market.
Since the covid epidemic, the entertainment industry has been one of the most affected
industries in all sectors, especially in the fields of hotels and resorts. Like other areas, in the

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entertainment field, especially in terms of music, the Spotify company was also significantly
affected, posing many challenges for the business.
First of all, political factor, politics during the Trump’s period actually affected in the poisitive
ways to the music industry. He puts in place a lot of positive policies for spotify, so that spotify
can create more growth opportunities in this promising market. However, on January 20, 2020,
Mr. Biden took office. This white house leader could change or even decline Mr. Trump's policies
and allow other competing companies to develop, especially products from the Chinese market
in the next few years in some recently predicts. (Owsinski, 2020)
Secondly, in terms of economic factors, in the US, due to the impact of the covid-19 epidemic,
the US economy has made a serious decline. Specifically, the GDP decline of the world's number
one economy in the second quarter of 2020 is 32.9%. Before that, the US economy fell 5% in the
first 3 months of this year and officially fell into recession due to the Covid-19 pandemic, ending
a chain of growth lasting more than 10 years - the longest period of growth in American history.
According to BEA, the decrease in GDP in the second quarter of this year in the US is nearly four
times the peak caused by the financial crisis more than 10 years ago. Meanwhile, the US GDP
decreased by 8.4% in the fourth quarter of 2008. Until now, although there is a solution from
vaccines, the US economy is still in a bad stage, although there is a little improvement because
of the pandemic. (Vu, 2020)
This leads to poor market performance and poses a lot of concerns for citizens and large and
small businesses. This poor market performance can lead to a multi-year recession, when
investors withdraw their money from traditional financial instruments to hedge against market
volatility.
Also because of the epidemic in the US, to operate in a less budget-friendly way, many businesses
lay off their employees. This increased the unemployment rate to a warning level in April 2020
of 14.7% (Duffin, 2020). The United States tried to ease its economic burden with a new financial
aid package of nearly $3 million. The Federal Reserve has also taken a series of urgent steps,
including lowering interest rates to near zero. (BBC News, 2020)

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Figure 3: Monthly unemployment rate in the United States (Duffin, 2020)
Social factor is the next factor, the coronavirus epidemic has enhanced the lives and behavior of
consumers, including how they play music. Spotify's use of Spotify on Spotify's car, wearable, and
web platforms has declined as users swapped places to work with their car, workers were forced
to work from home instead. However, usage on TVs and consoles increased by more than 50%.
Spotify -SPOT- shared these insights as part of its earnings report for the first quarter of 2020.
(Flynn, 2020)
"It's clear from our data that morning habits have changed dramatically," Spotify said in the
report. "Every day now looks like weekends". Spotify says listening time around activities such as
cooking, chores, family time and relaxing at home have all increased by double digits in the past
few weeks. Spotify also reported an increase in "chill" and "instrumental" searches and an
increase in consumption of podcasts for health and meditation. Spotify also surveyed US
consumers and found two out of five said "they're listening to music to manage stress more than
they normally do."

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According to Kerry Flynn - a reporter based in New York, during the quarter, Spotify reported
130 million paid subscribers, up 31% from the previous year and generating about $ 2 billion in
revenue. While Spotify beat expectations for premium subscription revenue, revenue from ad-
supported users fell short "due to the impact of COVID-19," the company said. For the last three
weeks of the first quarter, ad-support revenue was 20% lower than forecast.
Technology is the following aspect, Spotify is working to make the first smart speaker through
Amazon, Apple and Google, the first hardware system ever made by the music streaming giant.
An rise in the number of people who use smart speeches would make it easier for Spotify to
increase its number of users, which results in high revenues. Owing to the rapid technological
shift, the production and selling of products and services by company is affected. (Pinkstone,
2018)
Next, in terms of legal, The Music Modernization Act (MMA) has been signed by President Donald
Trump, who is a copyright law in digital music in 2018. This act guarantees that musicians and
songwriters earn rewards on their tracks, but Spotify's mostly royalty cost of sales has risen by
74.6%. The viability of music-streaming companies will theoretically be undermined by new
regulations or policies and put at risk. (Deahl, 2018)
Last but not the least, in aspect of environment, Spotify is ranked among Greenpeace's worst
sustainable companies because of the lack of consistent proof of its environmental care and its
attempts to minimize the usage of electricity in its data centres. Spotify has taken Google's
servers as an advance to the use of solar technology, one of the most sustainable businesses in
the world, which is dedicated to 100% renewable energy. Increased understanding of the
possible impacts of climate change changes the way businesses work and their goods.
To summarize, the macroeconomic analysis is essential to help organizations identify key
developmental factors and future impacts. Macro environmental analysis is to identify possible
threats to the organization's operations and opportunities for further expansion. Especially given
the crisis of the global covid epidemic, companies and Spotify also need to come up with solutions

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that can improve their capital decline by creating alternative strategies that is to suit the current
situation not only for the whole world but also in America.
III. INDUSTRY/SECTOR AUDIT IN SPOTIFY TECHNOLOGY S.A
When evaluating the industry/sector for Spotify, the Porter's Five Forces is a framework for
analyzing the competitive environment, including the number and strengths of its competitors
and new potential market participants , suppliers, customers and alternative products affect
corporate profits. This report will provide 5 factors to analyze the company's competition Spotify
with other companies in the industry based on the US market in recent years.
First and foremost, the competition is low to high in terms of industry rivalry. The number of
lines and people who sign up for them is rising every day. The two key players will be iTunes and
Sound Cloud.
One big competitor is ITunes and iTunes Radio. Members can create their own playlist in ITunes
and iTunes Radio, and iTunes Radio recommends songs based on their preferences and tastes.
The biggest benefit of iTunes is the freedom to browse the music library online and offline, which
would not affect the members of Spotify. In addition, if they buy and download a song they can
share up to six people with their family members, but Spotify's premium services are special. The
pricing policy of ITunes is different from Spotify, because they set carious songs at different rates
from $0.69 to $1.29. (Linshi, 2015)
Another competitor is Sound Cloud. The song users listen in the Sound Cloud come from the artist
directly and hence build a kind of emotional connection. Furthermore, users instantly download
music from their favorite groups or bands so that they do not have to make any further attempts
to build their playlist and explore new songs. Sound Cloud's annual membership fee is $6.00.
(Peckedrath, 2016)
The second factor is the bargaining power of the suppliers. In this case, the range of artists is
low-to-medium. Only a limited number of people are against publishing their songs on Spotify
and itis because they are against music streaming services, so there's nothing special about

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Spotify. One of the interesting events in the history of Spotify is Adele's "21" album. Adele
actually agreed to publish her album on Spotify thinking it would be available only in the premium
version without knowing that Spotify's free and premium music library offers the same category
(Maloney, 2012). Recently, most famous singers/musicians such as Billie Eilish, Taylor Swift, Justin
Bieber and many A stars have joined in and see Spotify as a new platform for sharing their
products. Not only that, but the charts over the past years of Spotify are also nominated by many
musicians and singers.
The following sector is bargaining power of buyers. From Spotify's point of view the buyer's
bargaining power is poor. Customers should upgrade Spotify's Premium or continue on a
freemium edition, since this rich library is not meant to be available free and without any
advertising on any other stream. The organization also aims to hear its members' feedback and
harmonize its strategies & offerings with their likes and dislikes.
Threat of substitutes comes next. The threat from replacements is small. Spotify's alternatives
may be rivals and radio feeds, but Spotify users have a chance to shape and individualize their
own playlists free of charge, even if they still see an advertising on their stream. It might sound
odd, but Spotify's own freemium version over premium is in reality a replacement and the hazard.
And if the organization generates income from advertisements released, free members are best
converted to paying subscriptions.
The final sector in Porter's Five Forces is threat of new entrants. In most countries, the music
listening market is saturated, which leaves potential entrants very vulnerable. Spotify, Pandora,
the Sound Cloud and The Beats-which was bought by Apple, are now quite big in the market
(Linshi, 2015). This will make it very difficult to enter the industry and win a market share.
To summerise, Porter's five forces research is an essential way of recognizing the competing
forces in a market. It is also useful to help businesses adapt their approach to their business
climate and increase their future profitability.
Moreover, in terms of the life cycle of the industry, the music industry in the major leisure
industry is in a growth phase. Consumers in the new industry have understood the value of new